* Effective trading requires an ability to listen to markets; most psychological trading problems occur when personal needs, reactions, and biases interfere with an open-minded processing of market communications;

* Markets can be understood, not only by what they do, but also by what they fail to do. A market that fails to follow an expected historical pattern, for instance, is communicating something of importance regarding current supply and demand;

* The optimal coaching of traders can be conceptualized as a supervisory process, much like the training models in psychiatry and psychology by which therapists are developed over time. This is significantly different from coaching models that are grounded in weekly individual or group talk time (therapy model) or time-limited workshops/seminars (education model).

So, if we draw upon the structure of training programs in such fields as medicine, law, performing arts, athletics, and military, what might an optimal coaching program for traders look like?

* It would start by building a fund of knowledge - Traders who try to learn the ropes by immediately placing their capital at risk are like rock climbers who try to learn by immediately tackling the highest mountains. As I stress in my performance book, there is no "minor leagues" of trading; no exchanges where everyone participating is either inexperienced or an idiot. From day one, traders always trade against pros. For that reason, traders begin by learning about how markets operate, how they move, why they move, and how traders read their movements.

* It would teach pattern recognition before intervention - A medical student first learns pathology and introductory clinical medicine before ever working on a patient. You can't heal if you don't know the difference between health and illness. Similarly, a student of the markets needs to learn patterns of supply and demand and various structures to market days and weeks before developing and executing trading plans.

* It would emphasize mutual learning and mentorship - Observing actual trading and the decision-making of more advanced students would precede one's own real-time market activity. Just as a junior medical student follows a senior student and beginning resident (intern) around the hospital, a junior trader would observe the learning and performance of more senior traders.

* It would entail ongoing supervision and performance review - In the military, there is always an after-action review to learn from operations that have been undertaken. Similarly, the work of medical students and residents is always supervised and reviewed by experienced attending physicians. In team sports, players will often break into groups for drills that are overseen by coaches and assistant coaches, with immediate corrective efforts as needed.

* It would combine group-based learning with individualized training - Learning in groups allows students to see the mistakes (and strengths) of others and learn from those via observation. Individualized learning enables students to identify and work on strengths and weaknesses unique to them, focusing on specific performances.

* It would be affordable - The beginning levels of training, focusing on fund-of-knowledge and pattern recognition, can typically occur in large didactic settings. For example, at my medical school, the entering class was about 150 students and all students took the same introductory courses in large lecture halls. Later, the training became more individualized in clinical rotations (group based) and work with individual supervisors. By delivering material in the best possible format according to a structured curriculum, training can be educationally and cost effective.

Perhaps the best model for training and development can be found, not in medicine or athletics, but in the spiritual disciplines. Think about the learning process that occurs in monasteries, Yeshivas, ashrams, and even martial arts centers. These involve several elements that have been crucial to their long-term success:

1) They are structured as committed communities, in which everyone is both student and teacher;

2) They are led by one or more accomplished individuals who provide the community with a sense of values and direction;

3) They involve a degree of withdrawal from the everyday world to facilitate a daily commitment to learning;

4) They are not primarily commercial entities, but instead seek mutual "profit" in self-development and participation in the development of others;

5) They develop multiple leaders and teachers, encouraging diversity of learning and thereby becoming self-sustaining. This is what differentiates true learning communities from cults that focus on a single "guru" leader.

The beauty of intentional trading communities is that, in seeking self and mutual learning and development, participants also profit and prosper financially. There is no dichotomy, so often seen in present educational efforts, between the learning needs of the participants and the financial interests of the educators. This is because the participants are the educators and the educators are the participants.

At one time, the barriers to the development of intentional trading communities and training programs were technological. It is not practical for people to uproot their lives and relocate to communities that may be located across the globe. At present, however, the tools for online learning and communication make it possible to sustain communities across national boundaries and far-flung time zones and markets. All that is needed is vision, values, and a curriculum that joins participants in mutual student/mentor roles..

13 comments:

I have an idea that could quite possibly work... It would be possible to create a "facebook" for traders. It could revolve around your own online trading journal. the journal would be seen and accessible to all members and they could comment and give suggestions on your failures and support for your good trades.

I think that as a whole everyone has a special something they're good at and could help others by sharing their strengths with them. We don't all need a full time one on one coach, what is needed is a community of traders all striving for consistency & progressive strength building, And is willing to give help & willing to receive it aswell

Brett, i have experienced what yu speak to in this outline, yet it broke down because of 2 key elements missing, "how the markets work" & "the method didn't work consistently enough"!!! ( it was based on sup/res derived from math & statistics and those levels were taken blindly), it didn't take to many times of getting run over to start conflict amongst participants.

yet even with this huge draw back (into financial ruin for many) the outline yu speak too work almost effortlessly, every 3 months new members were introduced in one room an (education rm) and taught by the 2 mentors & 4th & 5th generation students. the new student would move into the second room (observation rm) with 2nd, 3rd & 4th generation students as students proved they could place trades as outlined by the method in real time then they move to the (trading rm).

I have many trading buddies that survived this group, the camaraderie we share today is as precious & dear to me as studying the mkts itself....

technology had many limitation back then. echat was used. no chart playback feature to review todays mkts and trading & no live feed to observe the mentors charts as the day developed & most important play back of recorded lessons & possible shifts in price in many different environments/timeframes at possible locations of sup/res

my experience says this is doable. looking forward to comments by others and future post by yu on the subject. JT

Brett, I agree that this kind of community would be of great benefit to traders. As someone who has been drawn to the markets in general and trading in particular for some time, and is now fully engaged in seeking to turn it into a full-time career, I find it a somewhat isolating and frightening experience. I don't know any traders personally, or even any successful, active stock market investors. The main comment I get from people who know something about the stock market is that the EMH shows that profitable trading long-term is all a matter of luck! Sometimes after a really bad day of trading I hear that voice in the back of my head. . .

I feel like I don't have anyone to talk to about this topic, much less any knowledgable mentors, except a few voices on the internet who I have found have useful and helpful things to say about trading. This site would be foremost among those.

I learned to see how to profit from trend days more than a year ago. And I traded a life $ account, and found myself breaking even, and then losing some money. Then I got some experience under my belt on a sim trader and learned the "little tricks" that make a big difference to profitability (waiting for pullbacks in the trend, not buying tops or selling bottoms) and I began to grow my sim account balance. But in between some amazing home runs, far too often I would end the day with a smoking crater in my P&L -- because I was moving stops, refusing to take losses when the opportunity matrix went away from my entry position, and putting on edgeless trades after a small loss like a problem gambler, and turning a $500 down day into a $5000 down day.

And I was aware enough to realize that all of that kind of stupidity added up to real money and, if not culled from my trading behaviors, was likely to lead to failure in trading in the long term.

Thanks to your work here, I've become much more conscious and aware of my emotional state while trading, and "seeing" when I am putting on a trade because it is a good idea, versus putting on a trade because I am bored and want to see some action. You've made a huge difference in the quality of which trades I choose to engage in, and made it possible for me to see through self defeating nonsense about how I "missed a great opportunity" and "not wanting to miss a move". I realized that, at the end of the day, what matters in trading is the P&L, enjoying your trading, minimizing losses and drawdowns, and not "how many of the waves today did you catch" or "how many different trading setups do you have in your bag".

I second what you say about the need for knowledge and skill transfer methods other than the standard western educational model which seems to heavily rely upon the development of recall, and not problem solving, abilities.

Even in math, an area with strong ties to problem solving, good examination grades are often possible through the simple recall and rote application of an appropriate algorithm or heuristic, as the solution space to a given problem is often (artificially) very small indeed.

In contrast, Eastern approaches to knowledge transfer, such as those used in Zen buddhism are often taught through koans or riddles which require the student to develop an expertise that relies upon a type of reflective insight (or feeling) that is more lateral and holistic than corresponding Western 'expertise'. Think learning how to trade by doing cryptic crosswords.

I think the development of pattern recognition skills and effective 'right action' responses are difficult to install in students using western linear educational methods exclusively.

"As I stress in my performance book, there is no "minor leagues" of trading"

There could be a minor league if we define it not by skill but by risk. Something between paper and full risk levels, for example fractional contracts. It fascinates me as a learning model because that's how a famous trader learned.

The best thing about the model would be that it allows one to establish monetary risk levels without having to adopt low probability trading strategies.

Today, the only thing like that for traders would be the micro Forex accounts. It looks like CME, also, has a micro FX contract now or due out soon.

What can I do to help get this going? The curriculum you propose is exactly what I'm looking for. In the meantime, can you suggest any resources (books/articles) to get started on learning pattern recognition?

The description you gave of spiritual communities is the same description that catholic church is promoting for latin american countries: to be students and teachers simultaneously [they call it "disciples and missionaries"] of scriptures and sacraments.

I have 3 years of teaching and studying both markets and spirituality. So far has been a very rich experience. Though I need more discipline in market watching.

5) They develop multiple leaders and teachers, encouraging diversity of learning and thereby becoming self-sustaining. This is what differentiates true learning communities from cults that focus on a single "guru" leader.

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).